EFFECT OF GREEN SUPPLY CHAIN MANAGEMENT PRACTICES ON

SUSTAINABILITY PERFORMANCE OF ISO14001 SMEs

FAWAD HABIB QAZI

A thesis submitted in Fulfillment of the requirement for the award of the

Degree of Master of Technology Management

Faculty of Technology Management, Business and Entrepreneurship

Universiti Tun Hussein Onn Malaysia

August, 2016

I hereby declare that the work in this project report is my own except for quotations

and summaries which have been duly acknowledged

Student : FAWAD HABIB QAZI Date : August, 2016

Supervisor : ASSOC. PROF. DR. ALINA BINTI SHAMSUDDIN

iii

To my lovely mother amazing father. I couldn’t have does this without you. I believe

that this achievement will complete your dream that you had for me all these many

years ago when you chose to give me the best education you could.

iv

ACKNOWLEDGEMENT

In the name of ALLAH, the Most Beneficent, the Most Merciful. All praise goes

to almighty ALLAH who is the Lord of worlds. The compassionate, The Merciful.

I owe deep thanks to my supervisor, Associate. Prof. Dr. Alina for her tireless

efforts, encouragement, guidance and unconditional support throughout research. I

am also grateful to my co-supervisor Associate. Prof. Dr. Eta, who embellished me

with knowledge.

I appreciate my siblings for their affection, I couldn’t imagine my life without

them. Furthermore, my warm gratefulness goes to my uncle Khalid Siddique for

being best uncle forever. I would like to thank my awesome friends, Sazzad, Usama,

and Ishaq for their understanding, love and endless support throughout my studies.

Last but not least, I acknowledge, with gratitude, Center for Graduate Studies

(CGS) as well as Center for Research, Innovation, Commercialization and

Consultancy Management (ORICC) that allowed me to make better use of my time

and energies.

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ABSTRACT

Malaysia has moved from agriculture-based economy to an industrial-based

economy. As a consequence, manufacturing has increased markedly over the years

that results 33.9% contribution to GDP. Literature have shown that of manufacturing

activities are responsible for air and water pollution, toxic emission, and chemical

spills that have created environmental issues. Globalization has increased customers

awareness about environmental issues that introduced business opportunities for

environmentally conscious manufacturing industries. Hence, manufacturing

industries are facing pressure from global market to improve their sustainability

performance by implementing environmental management practices. This research

aims to determine the level of Green Supply Chain Management (GSCM) practices

and investigate their effect on the environmental, economic, and intangible

performance. The research adapted survey research design using questionnaire to

obtain data of GSCM practices from representatives of Small Medium Enterprises

(SMEs) in the study area. The questionnaire was adapted from previous studies, and

purposive sampling was used to select respondents. Data were collected from 120

SMEs to test the research hypothesis. The results showed that generally, there is

medium implementation of GSCM practices among the studied SMEs which results

improved performance. In addition, the results suggest that SMEs should strive to

implement GSCM practices from the environmental point of view. Therefore, results

clarify SMEs current state to assist both industry and academia on the way toward

enhancing performance. It is recommended that more research should be conducted

on GSCM practices and their effect on the intangible performance as limited studies

were found on this aspect.

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ABSTRAK

Malaysia telah mengalami perubahan dari ekonomi berasaskan pertanian kepada

ekonomi berasaskan industri. Kesannya, sektor industri telah mengalami

perkembangan dan menyumbang 33.9% kepada Keluaran Dalam Negara Kasar

(KDNK). Kajian literatur telah menunjukkan aktiviti pembuatan yang menyumbang

kepada masalah pencemaran udara dan air, sisa toksid dan tumpahan sisa kimia yang

mengakibatkan isu alam sekitar. Fenomena globalisasi telah meningkatkan tahap

kesedaran pelanggan terhadap isu alam sekitar dan telah memberi peluang yang

positif kepada industri yang menitikberatkan alam sekitar. Oleh itu, sektor industri

telah mengalami tekanan peningkatan prestasi terhadap pelaksanaan pengurusan

alam sekitar daripada pasaran global. Kajian ini dijalankan untuk menentukan tahap

amalan Pengurusan Rantaian Bekalan Hijau (PRBH) dan mengkaji kesannya

terhadap alam sekitar, ekonomi dan prestasi tidak ketara. Borang kajian soal selidik

telah digunakan untuk mendapatkan data berkaitan amalan-amalan PRBH daripada

wakil Perusahaan Kecil Sederhana (PKS) di kawasan kajian. Kaedah persampelan

bertujuan telah digunakan untuk memilih responden. Data yang diperolehi daripada

120 PKS digunakan untuk menguji hipotesis. Dapatan kajian menunjukkan tahap

pelaksanaan PRBH di kalangan PKS adalah sederhana dan peningkatan prestasi

diperlukan. Disamping itu, dapatan kajian juga mencadangkan PKS untuk berusaha

melaksanakan amalan-amalan PRBH daripada perspektif alam sekitar. Dengan itu,

keadaan semasa PKS dapat membantu industri dan akademik dalam peningkatan

prestasi mereka. Kajian lanjut terhadap amalan PRBH dan kesannya kepada prestasi

tidak ketara adalah dicadangkan kerana kajian yang dijalankan berkaitan aspek ini

masih terhad

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TABLE OF CONTENTS

CHAPTER TITLE PAGE THESIS STATUS CONFIRMATION SUPERVISOR DECLEARTION TITLE i DECLEARTION ii DEDICATION iii ACKNOWLEDGEMENT iv ABSTRACT v ABSTRAK vi TABLE OF CONTENTS vii LIST OF TABLES x LIST OF FIGURES xii LIST OF ABBREVATIONS xiii LIST OF APPENDIX xiv

1

INTRODUCTION

1

1.1 Introduction 1 1.2 Research Background 2 1.3 Problem Statement 3 1.4 Research Questions 4 1.5 Research Objectives 5 1.6 Research Scope 5 1.7 Significance of Research 6 1.8 Conclusion 6 2 LITERATURE REVIEW 7 2.1 Introduction 7 2.2 Small and Medium Enterprises 9 2.3 Definitions of GSCM 13 2.4 Concept of GSCM 14 2.5 Difference between SCM and GSCM 16 2.6 Importance of GSCM 18 2.7 Benefits of GSCM 19 2.8 GSCM in Developed Countries 20 2.9 GSCM in Developing Countries 23 2.10 GSCM Practices 25 2.10.1 Green Purchasing 29 2.10.2 Eco-design 29 2.10.3 Revers Logistics 30

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2.10.4 Legislations and Regulation 31 2.11 ISO14001 34 2.12 Sustainability Performance 34 2.12.1 Environmental Performance 36 2.12.2 Economic Performance 37 2.12.3 Intangible Performance 37 2.13 Conclusion 38 3 RESEARCH DESIGN AND METHODOLOGY 40 3.1 Introduction 40 3.2 Research Design 41 3.3 Research Framework and Hypothesis 42 3.3.1 Green Purchasing and Firm’s

Performance 43

3.3.2 Eco-design and Firm’s Performance 44 3.3.3 Reverse Logistics and Firm’s

Performance 45

3.3.4 Legislation and Regulations Practices and firm’s performance

46

3.4 Quantitative Method 46 3.5 Data Collection 47 3.5.1 Sampling Design 47 3.5.2 Population and Sample 48 3.6 Data Analysis 49 3.7 Questionnaire Development 49 3.8 Descriptive Analysis 52 3.9 Reliability 52 3.10 Validity

3.11 Factor Analysis 3.12 Pilot Study 3.13 Conclusion

52 53 54 54

4 DATA ANALYSIS 55 4.1 Introduction 55 4.2 Preliminary Test 55 4.2.1 Normality Test 56 4.2.2 Linearity Test 59 4.2.3 Multicollinearity Test 60 4.2.4 Outlier Test 61 4.2.5 Reliability Test 62 4.3 Descriptive Analysis 63 4.4 Analysis of Demographic Factors 63 4.5 Distribution of Mean Score and Standard

Deviation 64

4.5.1 Green Purchasing 65 4.5.2 Eco-design 66 4.5.3 Reverse Logistics 68 4.5.4 Legislation and Regulation 68 4.6 Factor Analysis 69 4.7 KMO and Bartlett Test 70

ix

4.8 Principal Component Analysis 71 4.9 Factor Loadings 72 4.10 Correlation Analysis 74 4.11 Multiple Regression Analysis 77 4.11.1 Multiple Regression Analysis

(GSCM Practices and Environmental Performance) 4.11.2 Multiple Regression Analysis (GSCM Practices and Economic Performance) 4.11.3 Multiple Regression Analysis (GSCM Practices and Intangible Performance)

78

80

81

4.12 Summary of Hypothesis Tested 82 4.13 Conclusion 84 5 DISCUSSION, RECOMMENDATIONS AND

CONCLUSION 85

5.1 Introduction 85 5.2 Recapitulation of the Research 86 5.3 Discussions of Research Findings 87 5.4 Limitation of the Study 90 5.5 Recommendations for Future Research 91 5.6 Conclusion 92 REFERENCES 94 Appendix 109-124

x

LIST OF TABLES

Table 2.1 Summary of GSCM development during past fifty years 9

Table 2.2 Categorization of SMEs 10

Table 2.3 Distribution of Sectors for SMEs 11

Table 2.4 Distribution of SMEs in Manufacturing Sector by Sub- Sector and Size

12

Table 2.5 Difference between the Green Supply Chain Management and traditional Supply Chain Management

17

Table 2.6 Summary of research held in developed countries 22

Table 2.7 The summary GSCM in developing countries 24

Table 2.8 Dimensions of green supply chain practices 26

Table 2.9 Summary of the GSCM practices used in the previous studies

28

Table 2.10 Definitions of Sustainability Performance Constructs 36

Table 3.1 Definitions of Sampling Methods 48

Table 3.2 Research Instrument 51

Table 3.3 Mean Tendency Level 52

Table 3.4 Cronbach’s Alpha Reliability Analysis 54

Table 4.1 Normality Test 56

Table 4.2 Tolerance Test for Multicollinearity 61

Table 4.3 Cronbach’s Alpha Reliability Analysis 62

Table 4.4 Analysis of Demographic Factors 64

Table 4.5 Mean Tendency Level 65

Table 4.6 Mean Score and Standard Deviation of Green Purchasing 65

Table 4.7 Mean Score and Standard Deviation of Product Related

Eco-design

66

Table 4.8 Mean Score and Standard Deviation of Packaging Related

Eco-design

67

Table 4.9 Mean Score and Standard Deviation of Reverse Logistics

68

Table 4.10 Mean Score and Standard Deviation of Legislation and Regulation

69

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Table 4.11 KMO and Barlett’s Test 71

Table 4.12 Total Variance Explained 72

Table 4.13 Component Matrix 73

Table 4.14 Pearson Correlation 75

Table 4.15 Model Summary of Multiple Regression Analysis 78

Table 4.16 Multiple Regression Results for Independent and Dependent Variables

79

Table 4.17 Model Summary of Multiple Regression Analysis 80

Table 4.18 Multiple Regression Results for Independent and Dependent Variables

81

Table 4.19 Model Summary of Multiple Regression Analysis 81

Table 4.20 Multiple Regression Results for Independent and Dependent Variables

82

Table 4.21 Summary of Hypothesis 83

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LIST OF FIGURES

Figure 2.1: Management system of GSCM 14

Figure 2.2: Dimensions of GSCM practices with their measuring items

33

Figure 2.3: GSCM performance constructs with their measuring items

38

Figurer 3.1: Flowchart of methodology 41

Figurer 3.2: Research Framework 43

Figure 4.1: Regression Standardized Residual Histogram of Green Purchasing and Environmental Performance

57

Figure 4.2: Normal Probability Plot of Regression Standardized of Residual Green Purchasing and Environmental Performance

57

Figure 4.3: Regression Standardized Residual Histogram of Green Purchasing and Economic Performance

58

Figure 4.4: Normal Probability Plot of Regression Standardized Residual of Green Purchasing and Economic Performance

58

Figure 4.5: Regression Standardized Residual Histogram of Green Purchasing and Intangible Performance

58

Figure 4.6: Normal Probability Plot of Regression Standardized Residual of Green Purchasing and Intangible Performance

58

Figure 4.7: Scatter Plot of Green Purchasing and Environmental Performance

59

Figure 4.8: Scatter Plot of Green Purchasing and Economic Performance

59

Figure 4.9: Scatter Plot of Green Purchasing and Intangible Performance

60

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LIST OF ABBREVATIONS

GSCM Green Supply Chain Management

ISO International Organization for Standardization

SMEs Small and Medium Enterprises

SMECORP Small and Medium Enterprises Corporation

CCICED China Council for International Cooperation

MRC Manufacturing Research Consortium R&D Research and Development

GNI Gross National Income

LCA Life Cycle Analysis

GPNM Green Purchasing Network Malaysia

CIRAIG Interuniversity Research Center for the Life Cycle of Products, Process and Services

EFA Exploratory Factor Analysis

CFA Confirmatory Factor Analysis

VIF Variance Inflation Factor

FMM Federation of Malaysian Manufacturers

RoHS Restriction of Hazardous Substances

SIRIM Standards and Industrial Research Institute of Malaysia

GDP Gross Domestic Product

xiv

LIST OF APPENDIX

APPENDIX TITLE PAGE

A Questionnaire

B Normal Probability and Regression Standard Residual Histogram

C Residuals Scatter Plots

CHAPTER 1

INTRODUCTION

1.1 Introduction

Manufacturing refers to the process of transforming raw materials, components, or parts

into merchandise with aid machines for use or sale purpose. Green Supply Chain

Management (GSCM) is gaining popularity among organizations and research

communities. Globalization impels industries to implement the GSCM practices to be

competent in global market, it also provides opportunities for manufacturers to export

(Semen et al., 2012). GSCM practices also extend to the entire value chain from supplier

to customer when organizations inform buyers of ways to reduce their impacts to the

natural environment (Handfield et al., 2002; Miemczyk et al., 2012). Organizations that

purchase inputs from a specific supplier also acquire waste from each supplier up the

supply chain. These distinctions are important because organizations that adopt GSCM

practices generally evaluate the environmental impacts of their first tier suppliers

(Handfield et al., 2002). The pressure and drive accompanying globalization has

prompted enterprises to improve their environmental performance (Zhu and Sarkis,

2006). Consequently, corporations have shown growing concern for the environment

over the past ten years (Sheu et al., 2005). The pressure on corporations to improve the

environmental performance comes from globalization rather than localization (Sarkis

and Tamarkin, 2005). Increasing environmental concern has gradually become part of

the overall corporation culture and, in turn, has helped to reengineer the strategies of

corporations (Madu and Madu, 2002).

2

Globalization provides opportunities for business extension simultaneously it introduces

the challenge of GSCM implementation in order to reduce emissions from the industries.

Different drivers influenced industries to initiate green practices as a result of

environmental concerns become a part of industrial culture which helped industries to

reformulate their strategies. Currently industries are practicing GSCM or initiating

GSCM practices in their operation. During last decade most of the research was done to

analyze the impact of drivers toward the implementation of GSCM practices, since

industries implement GSCM practices or initiate to implement, research focus turned

toward the impact of GSCM practices on performance (Seman et al., 2012).

1.2 Research Background

The Malaysian economy enjoyed a period of sustained economic growth up until the

mid-1997 East Asian economic crisis. Malaysia’s high level of economic growth and

aspiration of becoming an industrialized nation that has created the environment for

growth (Abdulllah et al., 2004). Malaysia now aspires to become a fully developed

economy by 2020 (Mansur et al., 2011). As a developing country, Malaysia has moved

from an agriculture-based economy to an industrialized economy in which

manufacturing is considered to be the highest contributor towards environmental

concerns. These concerns push firms into seriously considering the environmental

impact while doing their business. The implementation of GSCM is a key enabler that

could push organizations to focus on alleviating environmental issues, and providing

economic and social benefits (Zailani et al., 2012).

Despite of gaining popularity in Malaysia, there are several companies that are still

implementing a more traditional and conventional supply chain. GSCM can be

considered as closing the loop (Zhu and Sarkis, 2004a), this is because the “life” of a

product does not end when it reaches the consumer but can be reused by the

manufacturing companies and be reintroduced into the manufacturing process. This

research addresses the sustainability performance of Malaysian ISO 14001 certified

manufacturing SMEs. ISO 14001 sets out the criteria for an Environmental Management

System (EMS) in manufacturing industries. It does not state requirements for

3

environmental performance, but maps out a framework that a company or organization

can follow to set up an effective EMS, Handfield et al. (2005) stated, ISO 14001

principle provides a framework, which guides firms to implement EMS to improve

environment performance only within the firm’s operation boundaries instead of through

out the supply chain of the manufacturing company.

1.3 Problem Statement

Small and Medium enterprises (SMEs) are playing vital role in development of a

country’s economic growth and they can be considered as backbone of economic growth

in all countries (Khalique et al., 2011; Ghazilla et at., 2015). It has been reported that

SMEs contribution to the nation’s Gross Domestic Product (GDP) is 32.5 % in year

2011, and these companies aim to contribute 41% of the nation’s GDP by year 2020.

The Government of Malaysia has drafted plans which requires SMEs to increase

workforce from 59 to 61%, increase exports from 19 to 25% and increase number of

registered firms from 69 to 85% in Malaysia by year 2020 (The Star, 2013).

Increasing environmental concerns and awareness are the driving force which pushes

manufacturers all over the world to adopt green manufacturing practices that results

manufacturing SMEs to implement green practices in their business (Ghazilla et at.,

2015). The role of SMEs operating in the manufacturing sector is more important in

Malaysian economy (Kassim and Sulaiman, 2011). Due to significant contribution of

SMEs towards economy, various agencies, particularly that of Government, have given

a lot of importance on the development of SMEs. In order to strengthen the SMEs a

number of programs conducted to enhance their performance (Khalique et al., 2011).

Environmental issues have become a priority for the government and the public (Eltayeb

et al., 2011). As the population of the world increases and resource availability

decreases, companies are starting to realize that supply chains must be re-designed

(Carter and Jennings, 2002). Because of this inevitable problem, many researchers have

now claimed that the future of supply chain management is sustainability (Carter and

Jennings, 2002, 2004; Murphy and Poist, 2002). Thus, the concept of green supply chain

4

management (GSCM) is now gaining importance since it can help to minimize negative

impact of the industrial processes but can also enhance the competitive advantage of the

firms (Rao, 2006).

An extensive review of the literature revealed that simultaneous examination of three

dimensions of sustainability (economic, environmental, and social) under the unifying

umbrella of sustainability is lacking (Seuring and Muller, 2008). Most of these studies

focused primarily on environmental, operational and economic performance (Zhu et al.,

2005; Azevedo et al., 2011; De Giovanni and Esposito Vinzi, 2012; Green et al., 2012).

The importance of a social dimension to GSCM had been discussed in the literature,

primarily in relation to developed economies. Eltayeb et al. (2011) argued that intangible

outcomes such as company image, product image, employee satisfaction and customer

loyalty or satisfaction had not received much attention as outcomes of GSCM despite

studies such as Testa and Iraldo (2010) together withXie and Breen (2012) asserting that

GSCM can result in improved brand image, better relations with stakeholders and

improved personnel motivation. Although remarkable research have been conducted to

examine the impact of green practices on operational, environmental, and economic

performance but lack of research does exist to investigate the impact of green practices

on intangible performance along with environmental and economic performance

specifically. This study looks into the GSCM practices and their impact on performance

of Malaysian ISO 14001 certified manufacturing SMEs situated in Johor listed by

Federation of Malaysian Manufacturers (FMM).

1.4 Research Questions

What are the dimensions of GSCM practices?

What is the extent of GSCM practices implemented in ISO14001 manufacturing

SMEs?

Does implementation of GSCM practices affect SMEs sustainability

performance?

5

1.5 Research Objectives

To identify the dimensions of GSCM practices.

To determine the level of GSCM practices implemented in

ISO14001manufacturing SMEs.

To examine the relationship between GSCM practices and sustainability

performance.

1.6 Research Scope

This research was conducted in Johor, Malaysia and focus amongst Federation of

Malaysian Manufacturers (MMF) listed ISO 14001 certified manufacturing firms. The

manufacturing firms were selected because it is considered as an important contributor

to Malaysian’s economy in recent years (Seman et al., 2012). Besides that, ISO 14001

certified manufacturing firms aremore likely to be involved in the adoption of GSCM

practices (Handfield et al., 2005; Arimura et al., 2011). ISO 14001 principle provide

framework which guides manufacturing firms to implement and follow Environmental

Management Systems (EMS) to improve environment performance within the operation.

The practices incurred in ISO 14001 are such as green purchasing, product related eco-

design, packaging related eco-design, reverse logistics, and legislation and regulations

were used to examine their effect on sustainability performance communicating the

environmental requirement with suppliers, motivating the suppliers and confirming the

suppliers that follow the requirements.

6

1.7 Significance of Research

The purpose of this research is to investigate the impact of GSCM practices upon

sustainability performance.

(I) This study aims to provide a better insight how GSCM practices influence

sustainability performance of manufacturing firms.

(II) It is believed, companies which adopt GSCM practices with focus on green

activities will be able to improve their sustainability performance that results

enrichment of overall performance.

(III) The results from this research would help SMEs that are planning, or has

completed, the implementation of GSCM practices enhance its operations

and better connect their efforts for sustainability performance improvement.

1.8 Conclusion

This chapter is the basic outline of the research study. The research questions and

objectives formulated were used as the guidelines when conducting this research. The

structure of this research was designed around the research questions and objectives,

which are dimensions for evaluation of GSCM practices, types of performance and

investigating the effect of GSCM practices on sustainability performance.

CHAPTER 2

LITERATURE REVIEW

2.1 Introduction

This chapter presents the literature review of the main topic relating to area of

current study. It also offers an insight on the topic and better understanding about the

research objectives. It started with the various definitions of GSCM followed by

concept of GSCM from the different authors and difference between SCM and

GSCM importance of GSCM, benefits of GSCM. Finally it discusses GSCM in

developed and developing countries, GSCM practices, GSCM performance, and

SMEs definitions with respect to sales turnover and number of employees.

21st century came with number of opportunities along with various challenges,

evaluation of internet transformed the world into a global village which helps

organization to find new markets for their competitive products, on other hand

natural environment concerns bring global challenge to the manufacturers.

According to Baneerjee (2001), environmental concerns have been spread local to

regional ones and to global ones. Thus from the perspective of environmental

concerns, integration of environmental concerns and Supply Chain Management

(SCM) has been in focus for two decades (Sarkis, 2012). Therefore, integrating the

environmental concerns into supply chain management has been highly important for

manufacturers in order to retain competitive advantage. In spite of gaining

importance in industrial countries, there are several areas of Green Supply Chain

Management (GSCM) which require more research yet, greening the supply chain

has been identified a major issue of sustainable supply chain management (Large and

Thomsen, 2011; Kenneth et al., 2012). GSCM is the way to enhance performance of

8

the process and products by complying environmental regulations (Hsu and Hu,

2008).

According to Schaper (2002), industrial revolution is responsible for human to

further progress into current era. Rapid developments of technology lead toward

advancement in science that conceived manufacturing age plus pollution. At earlier

time industries were small factories and smoke was the main pollutant. However,

since the number of factories were limited and worked for certain hours a day, the

level of pollution did not grow greatly. Since these factories transformed into full

scale industries and manufacturing units, the issue of industrial pollution starts to

take importance. In 1960s emergence of environmental concern was viewed first

time as a major community issue, especially in wealthy developed countries of

Western Europe such as America and Australasia. Governments took initiatives to

respond environmental issues in policy making by 1970s. These initiatives were

contained of more strict laws to preserve the environment and limit the actions of

business, the establishment of regulatory bodies to deal with environmental concerns,

and appointing environment ministries and departments at state and national levels.

In 1980s and 1990s growing number of managers not only accept but adopt

sustainable framework for business practices. Legitimacy of environmental issues

had been accepted by most managers which impelled others to propound the

philosophy of market- based environmentalism.

This perspective argued that being “green” could in fact be a source of innovation,

competitive advantage, and new business generation, and claimed that the most

effective way of protecting the environment was to provide an economic incentive

for doing so (Kinlaw, 1993). Today there is a well-established and rapidly growing

body of research into the “greening” of business which includes frequent

conferences, dedicated journals, and industry groups such as World Business Council

for Sustainable Development. The development of GSCM during previous fifty years

is shown in Table 2.1 which is summarized by Schaper (2002).

9

Table 2.1: Summary of GSCM development during past fifty years

Year Key Green Issues Developments

1960s Environmental concern emergency from some developed countries.

1970s Government policy initiatives and business exclusions.

1980s-1990s Sustainability acceptance and innovations from business senior managers

and entrepreneurs.

2000s Fast growing and more systemical research from scholars.

Source: Schaper (2002)

In recent years, studies from various countries have identified several trends that

seem common to most of SMEs (Lee et al., 2012; Zailani et al., 2012). In general,

majority of small business owners and managers support protection of environment

by considering it an important issue. However, it is evident from the studies, poor

and limited awareness exists about formal environmental management system,

specific environmental laws and remediation processes (Schaper, 2002). Studies also

showed, SMEs are less likely to embark on environmental improvement programs,

writing environmental policy, implementing formal environmental management

standards, or undertaking environmental audit.

2.2 Small and Medium Enterprises (SMEs)

According to SMECORP (2013), enterprises are considered as SME based on the

requirements stated below.

10

Table 2.2 Categorization of SMEs

Category Small Enterprises Medium Enterprises

Manufacturing

Sales turnover from RM 300,000 to less than RM 15 million

Sales turnover from RM 15 million to not exceeding RM 50 million

OR OR

full-time employees 5 to less than75

full-time employees 75 to not exceeding to 200

Service & Other Sectors

Sales turnover from RM 300,000 or less than RM 3 million

Sales turnover from RM 3 million to not exceeding RM 20 million

OR OR

full-time employees 5 to less than 30

full-time employees 30 to not exceeding to 75

Source: SMECORP (2013)

According to Census Report on SMEs 2014, there was a total of 645,136 SMEs

operating their businesses in Malaysia, representing 97.3% of total business

establishments. Refer to number of registered companies and business published by

SSM (Companies Commission of Malaysia), there were slightly more than 1 million

companies and close to 5 million businesses (Sole Proprietorship & Partnership)

registered by the end of 2012. Most of the SMEs establishments are based in

Selangor (19.5%) and Kuala Lumpur (13.1%), followed by Johor (10.7%), Perak

(9.3%) and Sarawak (6.8%).

Referring to SME Corporation Malaysia, Service sector consists of sub-sectors

such as telecommunications, private education, healthcare, finance, insurance,

professional and business services, wholesale and retail trade, restaurants and

accommodation. Table 2.3 shows 90.1% of the SMEs are classified in Services

sector.

11

Table 2.3 Distribution of Sectors for SMEs

Sector Micro Small Medium Total SMEs Total SMEs

Number of Establishments % Share

Manufacturing 21,619 13,934 2,308 37,861 5.9

Service 462,420 106,061 12,504 580,985 90

Agricultural 3,775 1,941 992 6,708 1

Construction 8,587 6,725 3,971 19,283 3

Mining& Quarrying 57 126 116 299 0.1

Total SMEs 496,458 128,787 19,891 645,136 100

Source: Census 2014 by Department of Statistics, Malaysia

As stated in census 2014 conducted by Department of Statistics Malaysia, textiles

and wearing apparel is the highest sub-sector in manufacturing sector with number of

10,047 establishments. Food and beverage is the second sub-sector whom number is

6,016 followed by fabricated metal products with 3,958 SMEs. Sub-sector

distribution of manufacturing SMEs is shown in Table 2.4.

12

Table 2.4 Distribution of SMEs in Manufacturing Sector by Sub-Sector and Size

Sub-sector Micro Small Medium SMEs SMEs Total

Proportion (%)

SMEs

Textiles & Wearing Apparel 9,123 872 52 924 5.7 10,047

Food and Beverage Products 3,287 2,233 505

2,738 17 6,016

Fabricated Metal Products 2,070 1,698 190 1,888 11.7 3,958 Printing and Reproduction of Recorded Media

1,717 1,145 56 1,201 7.4 2,918

Machinery and Equipment (Including Repair and installation of Machinery and Equipment)

841 1,178 97 1,275 7.9 2,116

Furniture 886 847 110 957 5.9 1,843

Rubber and Plastic Products 322 1,126 308 1,434 8.9 1,756

Wood and Wood Products 499 791 158 949 5.9 1,448

Non-Metallic Mineral Products 484 758 131 789 4.9 1,373

Basic Metal 431 543 109 652 4 1,083

E and E products 231 639 198 837 5.2 1,068 Chemicals and Chemical Products 271 534 156 690 4.3 961

Paper and Paper Products 283 442 103 545 3.4 828

Motor Vehicles, Trailers etc. 242 440 77 517 3.2 759

Leather and Related Products 219 151 6 157 1 376 Basic Pharmaceutical Products and Pharmaceutical Preparations

60 115 17 132 0.8 192

Coke and Refined Petroleum Products 19 39 5 44 0.3 63

Tobacco Products 30 27 3 30 0.2 60

Others 613 356 27 383 2.4 996

Total 21,619 13,934 2,308 16,142 100 37,861 Source: Census 2014 Department of Statistics, Malaysia

13

2.3 Definitions of GSCM

GSCM is an action by adding “green components” into supply chain management.

Traditional supply chain is the manufacturing process of raw materials into the final

products then it is delivered to the customers by the distributor or retailer. Zhu and

Sarkis (2004b) defined, GSCM as a set of complex activities such as monitoring

environmental management process which contains of purchasing, operations,

marketing and logistics beside that recycle, reuse, remanufacture, reverse logistics

and innovation are other elements of GSCM. According to Hervani et al. (2005),

GSCM involves various activities such as reuse, remanufacturing and recycling,

green design, green procurement practices, total quality environmental management,

environmentally friendly packaging, transportation and managing end-life products

practices.

H’Mida and Lakhal (2007) defined GSCM, the practice of monitoring and

improving environmental performance in the supply chain during a product’s life

cycle. Rettab and Ben Brik (2008) stated, GSCM is a managerial approach that seeks

to minimize a product or service’s environmental and social impacts or footprint.

Torielli et al. (2011) confirmed, GSCM (the integration of both environmental and

SCM) is a proven way to reduce a company’s impact on the environment while

improving business performance. This research is based on following definition for

GSCM “a managerial approach formed with the combination of environmental

thinking and supply chain management which assists firms to endure their operation

by conforming green purchasing, eco-design, reverse logistics, as well as legislation

and regulations practices for sake of sustainable performance”.

Green supply chains differ from traditional ones in that GSCM is integrated into

the entire process including planning, procurement, production, consumption, and

reverse logistics. The entire supply chain is managed as green system and every

process focuses on environmental management and risk control. As shown in Figure

2.1

14

Figure 2.1: Management system of GSCM (China Council for International

Cooperation, CCICED AGM 2011)

Based on definitions, GSCM can be summarized as managerial approach derived

from environmental concerns, adds green components in supply chain, ranges from

selection of material, production, distribution, consumption, till recycling for

reduction of environmental impact to achieve sustainable performance.

2.4 Concept of GSCM

The complete concept of GSCM was first proposed by the Manufacturing Research

Consortium (MRC) of Michigan State University in the U.S. in 1996, for

comprehensively considering environmental impacts and resources optimization of

manufacturing supply chains. That is to say, it aims to minimize the environmental

impacts of the products end-of-use by tracking and controlling the raw material

procurement, in order to ensure compliance with environmental rules and regulations

starting from the stage of product R&D.

GSCM concept has ranged from green purchasing to integrated supply chains

starting from supplier, to manufacturer, to customer and reverse logistics. Reverse

logistics deals with the activities of the various processes which are necessary for

returning waste material and used goods to their producer respectively resulting into

15

the complete economic cycle compared to the traditional unidirectional flow

economy. Consequently, Srivastava (2007) viewed GSCM as an integration of the

environmental thinking into supply chain management, started with product

designed, material resourcing and selection, manufacturing process, final product

delivery reaching the end consumer, and the end-of-life management of the product

after its useful life. This generates on one hand advances towards sustainable

development on the other hand considerable cost reduction to some or even all of the

enterprises involved.

The awareness about the environmental pollution increased among people around

the world which made them curious about the protection of environment as a result

people intend to buy green products and concept of green supply chain management

got more popularity. Governments in various countries enforcing comprehensive

laws to save the environment for upcoming generations. GSCM has gradually

become into the new concept for the sustainable development of the enterprises.

However, it is not the simple problem of concept to really implement the GSCM in

enterprises, and there are large numbers of works to do Zhou (2009). In recent era

manufacturing industries are facing tremendous pressure for the implementation of

GSCM as result managers do not have to address social and environmental goals

only but they have to achieve those goals. To ensure complete environmental

excellence, top management must be totally committed (Rice, 2003). Moreover,

manufacturing firms have initiated implementation of green supply chain

management (GSCM) practices to meet customers demand for environmentally

sustainable products and services that are produced by complying government

environmental regulations (Murray,2000). Green design contains of two fundamental

tools known as life-cycle assessment (LCA) and design for environment (DfE).

According to United States Environmental Protection Agency, LCA is technique to

assess the environmental aspects and potential impacts with a product, process, or

service by: (1) Compiling an inventory of relevant energy and material inputs and

environmental releases, (2) Evaluating the potential environmental impacts

associated with identified inputs and releases, (3) Interpreting the results to help you

make a more informed decision. LCA typically provides two types of information, a

comprehensive life-cycle inventory of relevant energy and material inputs and

environmental releases throughout the system, and estimates of the resulting impacts

16

for a wide range of impact categories including global climate change, natural

resource depletion, ozone depletion, acidification, eutrophication, human health, and

ecotoxicity. Design for environment acknowledges that design determines a

product’s materials and the processes, by which the product is made, shipped, used,

and recover (Larson, 2000). Therefore, Design for environment can be used to avoid

toxic materials from the outset; minimize energy and material inputs; and facilitate

disassembly, repair, remanufacturing. Hence concept of GSCM can be summarized

by saying it is an idea originated from sustainability, resides in the minds, defines

company’s goals, flows from product design toward selection of raw material and

then streams through manufacturing, distribution till consumption of product, finally

retrieves consumed products by using reverse logistics and feeds back those products

in supply chain.

2.5 Difference between SCM and GSCM

There are several differences exist between SCM and GSCM. China Council for

International Cooperation (CICED, 2011) reported five differences between SCM

and GSCM in terms of goal, management structure, business model, business

process, and consumption pattern. In term of goal, GSCM targets to decrease the

consumption of the resources, energy, as well as emissions of pollutants to achieve

environmental goals primarily and gaining economic benefits secondarily while

conventional SCM targets to minimize the cost and enhance the supply chain

efficiency so that it could help to increase economical benefits.Unlike to GSCM,

environmental performance neither includes for internal management nor external

management in SCM. Business model for GSCM is more complete comparing to

SCM because conventional supply chain does not deal with low carbon and

environmental protection. For business process GSCM implement recycle approach

which is derived from cradle to reincarnation as result reverse logistics is added in

GSCM while traditional supply chain product flow is one way and irreversible in

nature. Differences between GSCM and SCM are summarized in Table 2.5.

17

Table 2.5 Difference between the Green Supply Chain Management and traditional

Supply Chain Management

Characteristics GSCM SCM

Goal Green supply chain seeks to maximize the economic benefits by decreasing consumption of resources, energy, and emission of pollutants to create socially responsible enterprises.

The conventional supply chain aims to lower the cost and improve the efficiency of supply chain to maximize the economic benefits

Management Structure Environmental performance is included in the enterprise’s internal and external management.

Environmental performance is not included in enterprise’s internal and external management which is a lacking.

Business Model Business model for green supply chain is more complete because it introduces low carbon and environmental protection.

Business model of conventional supply chain is less complete comparing to green supply chain as it does not deal low carbon and environmental protection.

Business Process Green supply chain based on “cradle to reincarnation”, product flow is circular and reversible and all products must be managed throughout entire life cycle beside that waste finds a second life or becomes raw material for new production or other purpose.

Traditional supply chain start with suppliers and ends with users, product flow is one way and irreversible known as “cradle to grave”.

Consumption Pattern Green supply chain can be promoted through green government procurement, corporate social responsibility, and sustainable practices.

The consumption pattern of traditional supply chain is a voluntary initiative governed by consumer interests and business activities.

Source: (CCICED, 2011)

18

2.6 Importance of GSCM

Globalization increased the opportunities for the buyers, with the rapid change in

global manufacturing scenario, environmental and social issues are becoming more

important in managing any business. The waste and emissions caused by supply

chain become one of the main sources of serious environmental problems including

global warming and acid rain. GSCM is an approach to improve performance of the

process and products according to the requirements of the environmental regulations

(Hsu and Hu, 2008), it is recognized as a direct and effective mechanism to address

environmental problems along with global supply chain. GSCM enables firms to

reduce negative environmental effects by minimizing wastage, decreasing the use of

harmful materials, recycling products and their wastage and limit the pollution via

cleaner production.

The degradation of environment impels stakeholders to deal with environmental

issues effectively, several groups and associations are trying to preserve planet green

while pollution continues to affect many parts of the world especially in

industrialized country. Industrial growth is the main cause of degradation. According

to (Beamon, 1999), waste generation and natural resource use, primarily attributed to

manufacturing, contribute to environmental degradation. Moreover scarcity of the

resources is other aspect to be considered by industries. Therefore, Green Supply

Chain Management (GSCM) is the way to deal with these issues because GSCM is

driven mainly by the escalating deterioration of environment, e.g. diminishing raw

material resources, overflowing waste sites and increasing level of pollution (Kumar

and Chandrakar, 2012).

Since environmental issues and scarcity of resources are hinders to achieve

sustainable performance, GSCM is the philosophy to optimize the performance in

unfavorable conditions. It has potential to minimize environmental impacts of

manufacturing by introducing eco-design approach which helps to use environment

friendly materials so that environmental impact decreased whereas production

efficiency increase in from of reduction in emission. GSCM introduces reverse

logistics approach that assists manufacturers to recycle the products after

consumption as result overall consumption of raw material decrease which provide

solution to the scarcity of resources as well as to the degradation of environment.

19

2.7 Benefits of GSCM

One may only think of banning toxic chemical substance usages or reducing

emission and waste to the environment when considering green supply chain

practice. Yet it is much more than merely reducing usage and pollution. The benefits

of GSCM are not limited to less toxic consuming or less waste. The GSCM principle

can be applied to all departments in the organization.

There are numerous studies that mentioned the benefits of adopting GSCM.

Duber-Smith (2005) identified ten reasons that the company should adopt green:

target marketing, sustainability of resources, lowered costs/increased efficiency,

product differentiation and competitive advantage, competitive and supply chain

pressures, adapting to regulation and reducing risk, brand reputation, return on

investment, employee morale, and the ethical imperative.

In the manufacturing process, the company can apply “green” by several methods

to reduce energy and resource consumption, reuse and recycling are imperative.

Several papers provided green practices such as Duber-Smith (2005), he suggested

some practices including reducing energy consumption, recycling and reuse, using

biodegradable and non-toxic materials, minimizing harmful emissions, and

minimizing or eliminating waste. In a Chinese sugar manufacturer, Guitang Group

can reduce waste and improve their financial performance by using waste from the

upstream as raw materials for downstream production (Zhu and Cote, 2004).

Industrial revolution has enhanced manufacturing process that resulted faster

production together with higher quality of the product. On one side it enabled

industries to meet human needs despite of growth in population around the globe

simultaneously it is responsible for the deterioration of environment. GSCM assist to

minimize the environmental impacts of massive production, it does not only decrease

environmental product but it cause to improve organizational performance. It helps

to improve brand image as well as company’s image and increase the profitability.

20

2.8 GSCM in Developed Countries

According to the World Bank developed countries refer to the countries where high

level of development does exist based on certain characteristics. These characteristics

consist of economic, industrializations and Human Development Index (HDI).

Income per capita is the indicator for economic characteristics. Countries with high

income or gross domestic per capita can be categorized as developed countries.

Developed countries have post-industrial economies which mean service sector

provides more wealth than industrial sector. Several researchers conducted research

in developed countries to analyze the integration of environmental concept and SCM

(Seman et al., 2012).

There are available studies that investigated the environmental, economic and

operational outcomes of Green Supply Chain Management (GSCM). The study of

the outcomes of GSCM is expected to show, how effectively the green supply chain

initiatives are implemented. The past conducted studies had shown that there is

significant relationship between GSCM practices with operational performance

(Szwilski, 2000; Tooru, 2001).

One research was done by Holt and Ghobadian (2009) in UK, research examined

the extent and nature of greening the supply chain in manufacturing sector, it also

identified those factors which influence the breadth and depth of green supply chain.

Results of the research showed greatest pressure to increase the environmental

performance was legislation and regulation furthermore research revealed GSCM

practices among manufacturers focus on internal risk and descriptive activities.

Nawrockaet al. (2009), conducted their research about the role of ISO 14001 in

environmental supply management practices in Swedish companies, research showed

that ISO 14001 has a facilitating role in the environmental activities between

customer and supplier. Zhu et al. (2010), introduced GSCM experience of large

Japanese manufacturers, GSCM practices were used to analyze the performance

outcome. Results of the research showed internal environmental management

implementation at Japanese manufacturing industries is higher comparing to Chinese

manufacturing industries besides that finding of the research indicated GSCM

practices improved environmental and financial performance of manufacturing

industries significantly but it did not improve operational performance.

21

Green et al. (2012), investigated the impact GSCM practices on performance in US

based manufacturing organizations, results of the research indicated GSCM practices

leads manufacturing organizations toward enhanced environmental and economic

performance that results positive impact on operational performance which cause

improvement in organizational performance. Lee et al. (2012), explored GSCM

practices and their relationship with organizational performance, this study proved

indirect relationship does exist between GSCM practices and business performance

through mediating variables of operational and relational efficiency. Tachizawa et al.

(2015), analyzed the complex interrelationships among environmental drivers, Green

Supply Chain Management (GSCM) approaches and performance, results showed

that firms needs to adopt collaborative practices with their supplier in order to

improve their sustainability performance. Paulraj et al. (2015), investigated the

motives of firm’s engagement toward sustainable supply chain management, results

of the research revealed relational and moral motives were responsible for

implementation sustainable practices in German firms. Choi et al. (2015), examined

the impact of GSCM practices toward performance in Korean firms, findings of the

study showed green practices caused improvement of environmental and financial

performance.

Table 2.6 showed the summary of previous studies done on GCSM in different

developed countries. These few previous studies have been referred throughout this

study as they have more close relation with the topic. These studies are done at UK,

Sweden, Japan, US, Korea, Spain, and Germany.

22

Table 2.6: Summary of research held in developed countries

Year Title and Author Finding and Conclusions Country

2009 An empirical study of green supply chain management practices amongst UK manufacturers

Holt, D. and Ghobadian, A.

Manufacturers identify the greatest pressure to increase environmental performance is legislation and internal drivers.

GSCM practices among the UK manufacturers are focusing on internal higher risk, descriptive activities. Environmental attitude is a key predictor of GSCM activity and those organizations that have progressive attitude are also operationally very active.

UK

2009 ISO 14001 in environmental supply chain practices Nawrocka et al.

ISO 14001 has a facilitating role in the environmental activities between a customer and a supplier.

Closer relationship with suppliers was seen as beneficial both for successful outcomes and projects as a facilitator

Sweden

2010 Green supply chain management in leading manufacturers - case studies in Japanese large companies Zhu et al.

Japanese large manufacturers implement one key GSCM practices, internal environmental management at a significantly higher level than Chinese manufacturers.

Large Japanese companies have made significant improvements for environmental and financial performance but not for operational performance.

Japan

2012 Green supply chain management practices: impact on performance Green et al.

Green supply chain practices by manufacturing organizations leads to improved environmental and economic performance results positive impact on operational performance which enhances organizational performance.

US

2012 Green supply chain management and organizational performance Lee et al.

Indirect relationship between GSCM practices and business performance through mediating variables of operational efficiency and relational efficiency.

Collaboration between SMEs suppliers and large buying firms improves implementation of GSCM practices, relational efficiency results better business performance.

Korea

2015 Green supply chain management approaches: drivers and performance implications

Tachizawa et al.

Firms need to adopt collaborative practices with their suppliers.

Collaborative efforts between buying firms and suppliers are needed to improve sustainability

Spain

23

2015 Motives and performance outcomes of sustainable supply chain management practices: A multi-theoretical perspective Paulraj et al.

Relational and moral motives are key drivers to implement sustainable supply chain management.

Germany

2015 The impact of green supply chain management practices on firm performance: the role of collaborative capability. Choi et al.

Implementation of GSCM practices improve both environmental and financial performance of a firm.

Firms can expect improved financial performance when they seek synergistic effect by involving their partners in the GSCM implementation process.

Korea

2.9 GSCM in Developing Countries

In 2013 World Bank used Gross National Income (GNI) per capita per year as

standard to define developing countries. According to World Bank, developing

countries are referred to those countries that GNI is US$ 11,905 or less. Several

researchers have done their research about GSCM in developing especially in China

simultaneously other developing countries also initiated GSCM implementation in

industries which extend GSCM related research to the developing countries. An

intensive research has been done in developing countries to find the drivers of

GSCM, different type of practices implemented in SMEs and their impact on

performance outcome.

Huang et al. (2015), investigated the pressures and drivers that have been

experienced Chinese SMEs in terms of GSCM, results of research indicated SMEs in

China are facing pressures from different sources such as regulations, suppliers,

customers to implement GSCM practices as result manufacturers were motivated to

implement GSCM practices. Aganet al. (2013) explored the drivers of environmental

process and their impact on performance of Turkish SMEs. Findings of the research

indicated SMEs have more resources and better performance with their expansion.

Furthermore, research revealed stringent laws caused inverse impact on SMEs

performance comparing to large firms. Soubihia et al. (2015) carried out their

research in Brazilian ISO 9001 certified company, it was found from the research

green operational practices influence green performance. One research by Lee et al.

(2014) in Malaysia tested the relationship between GSCM practices and

24

technological innovation in manufacturing firms, research showed green purchasing

and cooperation with customer do not have any positive correlation with

technological innovation but positive relation exists between GSCM practices and

technological innovation. The research by Ninlawan et al. (2010) in Thailand showed

environmental and positive economic performance are the significant outcome of

GSCM while regulatory pressure is the most effective driver to implement GSCM in

Thai electronics industries. Hence GSCM drivers, practices and performance are

known simultaneously GSCM practices are being implemented in developing

countries which provide opportunity to the academicians and researchers to conduct

more research in developing countries.

Table 2.7: The summary GSCM in developing countries

Year Title and Author Finding and Conclusions Country

2015 An exploratory survey of green supply chain management in Chinese manufacturing small and medium-sized enterprises pressures and drivers. Huang et al.

Chinese manufacturing SMEs face pressures from different sources including regulations, customers, suppliers and public awareness to implement GSCM practices.

Chinese manufacturing SMEs are being motivated by different drivers to implement GSCM practices.

China

2013 Drivers of environmental process and their impact on performance : a study of Turkish SMEs Agan et al.

SMEs have more resources and better environmental performance since they get larger.

Because of stringent laws SMEs were disproportionally impacted comparing to large firms.

In developing countries, either law is written loosely for SMEs therefore it is ineffective for environment protection or written strongly knowing that it will not be enforced.

Turkey

2015 Green manufacturing: relationship between adoption of green operational practices and green performance of Brazilian ISO 9001 certified companies Soubihia et al.

Green operational practices influence the green performance

Brazil

2014 Creating technological innovation via green supply chain management: An empirical analysis Lee et al.

Green purchasing and cooperation with customer do not have a significant positive correlation with technological innovation.

Positive relationship exists between GSCM practices and technological innovation.

Malaysia

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